The Government announced in the 2015-16 Budget that a roll-over would be introduced to allow small businesses to change their legal structure without incurring a capital gains tax liability. An exposure draft with amendments implementing this announcement is released for consultation.
The most appropriate structure for a small business may change over time, or a new small business may choose an initial legal structure that it later finds to be unnecessarily complex. Restructuring into a more appropriate legal structure may help a business to continue to develop and grow, to avoid unnecessary compliance costs resulting from using overly complex structures, or to adapt to current conditions. However, where a restructure requires business assets to be transferred from one entity to another, such as from a company to a trust, significant income tax liabilities may arise. The impact of these liabilities on cash flow and available capital may create an impediment to restructuring.
This exposure draft proposes amendments to make it easier for small businesses owners to restructure their business by allowing them to defer gains or losses that would otherwise be realised when business assets are transferred from entity to another.
The Budget announcement referred to a roll-over of capital gains tax liability, however, this Exposure Draft extends the relief to the transfer of trading stock, revenue assets and depreciating assets.